Question: The LJB Company must replace a freezer and is trying to decide between the following two alternatives:
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Freezer A
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Freezer B
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Investment Required
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$29,000
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$25,000
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Annual electric bill
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3,000
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4,000
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Salvage value
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6,000
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5,000
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Project life
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11 years
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11 years
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The LJB Company’s cost of capital is 8%.
Which investment provides LJB with the lowest total cost?